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Why Sovereign Wealth Funds Love Real Estate

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Despite Norway’s sovereign wealth fund having a hard time finding suitable properties in Tokyo and in other core Asian cities, sovereign investors in the aggregate have steadily put capital to work in real estate. Even micro sovereign funds like the one owned by the Republic of Nauru, has ownership in Houston office real estate.

The low-yield environment has been a defining factor on why sovereign funds invest directly into real estate or property funds. The decade-long subtle manipulation of interest rates to stave off a global depression has forced cash-rich sovereign funds to park money into these concrete towers in central business districts. These mega institutional investors, some smaller in assets, continue to seek out experienced real estate partners to deposit their capital in niche deals. Whether its Gulf funds like the Qatar Investment Authority involved with the Empire State Building or Hudson Yards, or the Norway Government Pension Fund Global’s all-encompassing European logistics partnership, the demand for suitable institutional real estate in developed market appears to remain valid.

According to data from the Sovereign Wealth Fund Transaction Database, which tracks direct transactions made by sovereign funds, pensions and other public funds, wealth funds directly invested a staggering US$ 31.2 billion into the real estate sector versus US$ 12.3 billion in 2011. This stark contrast demonstrates three important points. First, more wealth funds are going direct or participating in co-investments. This means sovereign investors are seeking partners whether they are real estate firms, developers, pensions, life insurance companies, real estate investment trusts or wealthy family offices. For example, the GIC had formed a joint venture with affiliates of Boston-based Beacon Capital Partners, LLC to swoop up a portfolio of Washington D.C. metro properties that included the Lafayette Center complex.

California Love

Sovereign wealth is attracted to the Golden State over its diverse terrain, demographics, entertainment industry and being a global hub for innovation (San Francisco Bay Area). The Qatar Investment Authority (QIA) has been aggressive in wanting to invest in California institutional real estate. The QIA wanted to outright acquire a portfolio of offices owned by The Blackstone Group, in which the private equity firm became the owner in part of its 2007 acquisition of Equity Office Properties Trust. The QIA ended up partnering with Douglas Emmett, Inc., a real estate investment trust, to acquire these office properties once they hit the market such as 12100 Wilshire Boulevard, 233 Wilshire Boulevard and 1299 Ocean Avenue.

Going into 2017, it appears wealth funds continue to seek out high-quality real estate assets to help diversify their portfolios.

Student Housing and the Resiliency of the Education Sector

Hotels and resorts can be corrosive investments in downward economies, while the U.S. education sector has been resilient, even during the global financial crisis back in 2008. Some sovereign funds have found success in student housing. GIC Private Limited has constructed a portfolio of student housing in Australia, the United Kingdom and the United States, betting on ever-growing education sector. In March 2017, the GIC entered into a venture with the Canada Pension Plan Investment Board (CPPIB) and The Scion Group LLC, to invest and oversee a massive portfolio of student housing assets in the United States. The GIC also has a U.K. student housing venture with Unite Group Plc.

Going into 2017, it appears wealth funds continue to seek out high-quality real estate assets to help diversify their portfolios. The excessive demand from sovereign wealth funds and other real estate players have caused many pensions and real estate private equity shops to be net sellers so far in 2017. This recycling of capital has been a boon for real estate investment firms.

SWFI First Read, September 21, 2018

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U.S. Public Becomes More Aware that Gmail Scans Emails

Alphabet is a major stock holding for sovereign wealth funds and large pensions. Search giant Google is under fire for allowing third-party partners and companies, like Return Path Inc and other advertisers, to share data from Gmail accounts. Many experts and tech observers already knew this, but more people in the public are becoming aware of Google’s practices when it comes to privacy. Google disclosed in a letter to U.S. lawmakers this finding. The Wall Street Journal reported that in some instances, app companies were able to read people’s emails in order to improve their algorithms. In 2017, Google said they would stop scanning all of one’s Gmail messages for the goal of personalized ads.

GPIF Infrastructure Exposure Almost Reached 200 Billion Yen in March 2018

Japan Government Pension Investment Fund’s (GPIF) exposure to infrastructure real estate was 196.8 billion JPY at the end of March 2018. At that period, 57% of the exposure was to the UK, 15% was to Australia, 15% to Sweden, 10% to Spain and 3% to Finland. 21% of GPIF’s infrastructure portfolio was linked to airports versus 27% to ports.

AIMCo-backed sPower Closes $498.7 Million Bond Deal

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Iceland Contemplates a Sovereign Wealth Fund

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The Government of Iceland is looking to possibly form a sovereign wealth fund to stabilize the country from unforeseen shocks to the national economy. The Iceland government released a statement saying, “The state’s contributions to the Fund will be equivalent to new revenues from publicly owned power production companies which are expected to accrue in the coming years.”

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CBRE Global Wins First GPIF Global Real Estate Mandate

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Japan Government Pension Investment Fund (GPIF) awarded its first global real estate mandate by hiring CBRE Global Investment Partners Limited. This is a global core real estate fund-of-funds separate account. Overseeing this mandate as a gatekeeper is Asset Management One Co., Ltd., which is a unit of Mizuho Financial Group. This RFP was launched in April 2017.

CBRE Global Investment Partners is the multi-manager arm of CBRE Global Investors.

In addition, on August 8, 2018, GPIF hired two custodians for short-term investments. These custodians are Trust & Custody Services Bank, Ltd and The Master Trust Bank of Japan, Ltd.

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